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The Accelerators: How to Attract Investors

Be Confident and Seek Input, Say Experts

Many entrepreneurs find it difficult to navigate the options when it comes to raising capital for their nascent businesses. The competition for investor attention can be fierce.

Twenty-eight percent of business owners who attempted to raise capital last quarter were able to do so from wealthy individual “angel” investors, up from 13% in the second quarter, according to a survey of 2,361 entrepreneurs by Dun & Bradstreet Credibility Corp. and Pepperdine University’s business school that was fielded from July 22 to Aug. 15. Meanwhile, 14% were able to raise venture capital in the third quarter, up from 7% in the year earlier period, the researchers said.

On the Accelerators, a blog on the challenges of starting a business, experienced entrepreneurs and venture capitalists shared tips on attracting investors. Edited excerpts:

Be Confident, Not Needy

Venture investors are well aware of the risks of building billion-dollar companies, much more so than the entrepreneur. Your job is to get them excited about a massive opportunity. Paint the grandest vision for what your business will become. The best thing you can do in a pitch meeting is paint a big vision of something that should seem audacious and even outlandish.

At the same time, you should try to subtly convey that your deal is going to get done regardless of their investment. Don’t come from a place of need, which we all naturally repel. Create scarcity—let them know that this funding round is closing soon, and that you’re really there to see if you’re the right fit for each other.

Every investor wants to invest in a confident team. Having that certainty helps you walk the line between confident and cocky.

—Jason Nazar, co-founder, Docstoc, Santa Monica, Calif.

Seek Input From a Network

One of the rookie mistakes many first-time entrepreneurs make is to be too guarded about their ideas. Many will actually spend their first $25,000 on patent lawyers without ever fully vetting their product.

The problem is that it’s hard to break through the clutter and get the attention of top investors—they often look only at deals that come in from a credible referral. There’s absolutely nothing more credible than getting an endorsement from a well-known expert who has already put his or her own money into your company.

The only way to create a network like that is by sharing your ideas and seeking input from experts, investors and potential mentors. Most young entrepreneurs overestimate the chances of someone stealing their idea versus the benefits associated with sharing it.

—
Scott Weiss,
partner at Andreessen Horowitz, Menlo Park, Calif.

Don’t Aim for the Moon

“Valuation sensations”—young entrepreneurs who are worth more than a billion dollars—make great press. Like magic, they seem to take ideas out of thin air and turn them into large amounts of money, fast. While, these youthful tycoons pique the imagination, they also distort our understanding of how entrepreneurship works in America.

The entrepreneurial community and media need to challenge today’s assumption that “real entrepreneurs shoot for the moon and raise big bucks.” Aiming for the moon isn’t how the vast majority of successful entrepreneurs created the bulk of the value in our economy. Let’s also celebrate the entrepreneurs who create value via steady growth and reinvestment of profits.

In the U.S. about five million people every year attempt to become entrepreneurs, according to the Kauffman Foundation. Typically, most funding for startups comes from the founder’s savings, followed by loans on assets such as cars and houses, followed by credit-card debt. But less than 10% of all the funds invested in startups come from outsider equity, Kauffman says.